Berko: Consumer spending and HSAs

Why is it that Macy’s, which used to be my favorite department store, and now Wal-Mart and other retailers are reporting lower earnings and slowdowns in revenues? The financial data report low interest rates, better employment, that home sales are good and that General Motors, Ford and Chrysler are selling cars and making huge profits. What’s wrong here? My next question is: How do I qualify for a health savings account, and how much can I contribute?

K.J., Joliet, Ill.

Dear K.J.:

Caterpillar, 3M, JPMorgan Chase, General Motors, Ford, Pfizer, Monsanto, General Electric, Rockwell Collins and other blue chips, as well as numerous pale blue chip companies, have increased their profits rather nicely over the past three years. However, that rather nice increase in profits has been made possible by many fewer employees, new hires at much lower salaries, reduced benefits and impressive automation. The average consumer today earns less than he/she did in 2007. Those high-paying marketing positions are now low-paying clerical jobs; law firms are downsizing; commercial banks are laying off people in droves; the $50-an-hour jobs (plus benefits) in the steel and auto industries are drying up; carpenters, electricians and plumbers are now happy to work at 70 percent of their 2007-08 wages; newspapers and magazines have downsized significantly, and wages have been frozen or reduced; municipalities have laid off huge numbers of workers and eliminated numerous high-paying supervisory positions; and the investment banking industry has been cutting thousands of highly compensated M.B.A.s every quarter. And most college grads can’t find jobs and can’t repay their loans.

I’ve been telling readers for more than a year that consumers don’t have the buying power or staying power to keep corporate revenues and profits rising at the healthy pace that Wal-Mart, American Eagle, Dillard’s and other retailers have enjoyed over the past three years. Executives at Macy’s, Kohl’s, Nordstrom and other consumer goods retailers are puzzled over the disconnect between falling floor sales and recent economic indicators that have been pointing to a strong consumer. This disconnect concerns executives at Panasonic, Hewlett-Packard, IBM, Dell, Intel and AOL, where revenues have been disappointing.

However, consumers have been enthusiastically borrowing big-time to buy new homes and autos, which has created a worrisome medical phenomenon psychiatrists call cashtration. This is the act of borrowing money to purchase a new home or car that renders the purchaser financially impotent for an indefinite period of time. Yes, there are more new jobs, but most new employment opportunities are in the low-paying service, health care, restaurant, retail and clerical sectors, in which the average earnings are less than $30,000 a year. Of the 640,000 new jobs created last quarter, 230,000 (36 percent) were in those low-paying sectors. You must understand that lower-income consumers don’t benefit from a rising stock market or higher home prices. These folks are still under pressure from high unemployment, $4-a-gallon gas, increased payroll taxes and soaring health insurance costs. You must be mindful of how most Americans live, so when you observe positive economic events, you should realize that those events don’t always flow through.

In order to qualify for a health savings account, you need a high-deductible health insurance policy, whether it’s through your employer or you purchase the policy on your own. For this year, your deductible has to be at least $1,250 if you have individual coverage or $2,500 if you have family coverage. You can make pretax contributions or tax-deductible contributions this year of $3,250 if you just have individual coverage. However, if you have a family policy, you can contribute up to $6,450 in 2013. Folks 55 or older can save an extra $1,000 per person, and you can add money to this account until the tax filing deadline (April 15, 2014) for 2013 contributions. But be mindful that if you withdraw HSA funds for any unqualified medical expenses before age 65, you’ll be subject to a 20 percent penalty plus income tax on the amount you withdraw.